I have a few questions related to exactly what can and can’t be claimed as tax deductions for body corporate fees and charges.

Let’s use a hypothetical example of body corporate fees of $1,000 per annum, that comprises $750 administration fees and $250 contribution to a sinking fund.

In any given year, there may be no use of the sinking fund, so how much would be claimable that year?

The next year, there is a project to paint the exterior of the building and this is funded from the sinking fund. Based on evenly distributing the cost across all the units in the body corporate, an amount of $500 is taken from the sinking fund on behalf of each unit. Does $500 then become deductible? If for painting, it would be immediately deductible wouldn’t it?

What about if the complex requires a new pool pump, filter etc. Should the cost of these be apportioned across each unit and appropriate depreciation claimed?

What about if the unit is owned for say 5 years and none of the money contributed to the sinking fund are expended and the owner decides to sell. Do the sinking funds contributed for 5 years get added to the cost price of the unit, to reduce capital gains?

I have read the relevant section in ATOs rental Properties guide (NAT 1729-6.2003) but I find it rather vague.

I saw my Accountant today to process my return for 2003/2004. She has never, and didn't today make a claim for the sinking fund component of the Body Corp fees. She has always told me it is never a deduction but it is being contested at the moment, but she didn't know the full details. Interesting point you make though, if some of the sinking fund is used, is it then tax deductable. Dale would know.

Here is the explanation from the ATO website on body corporate fees for rental properties -

"Body corporate fees and charges

You may be able to claim a deduction for body corporate fees and charges you incur for your rental property.

Body corporate fees and charges may be incurred to cover the cost of day-to-day administration and maintenance or they may be applied to a special purpose sinking fund.

If the fees and charges you incur include a contribution to a special purpose sinking fund you will only be able to claim a deduction for that portion of the fees and charges that relate to the cost of day-to-day administration and maintenance. This is because payments to a special purpose sinking fund are usually to cover the cost of capital improvements or capital repairs and are therefore not deductible — see Taxation Ruling TR 97/23-Income tax: deductions for repairs. You may be able to claim a capital works deduction for the cost of capital improvements or capital repairs once the cost has been charged to the sinking fund.

If the body corporate fees and charges you incur are for things like the maintenance of gardens, deductible repairs and building insurance, you cannot also claim deductions for these as part of other expenses. For example, you cannot claim a separate deduction for garden maintenance if that expense is already included in body corporate fees and charges."

My body corporate fees have 2 separate components - administration fund and sinking fund. Having read the above I have always claimed on the portion related to the 'administration fund', but not the 'sinking fund' portion because I thought this would form part of the base cost for CGT purposes. The body corporate fees only have one sinking fund - there is no mention of a 'special purpose sinking fund'. Should I have claimed the whole amounts of body corporate fees or only the admin part? According to NickM I could have claimed the whole lot. Looking forward to some clarification from the forum.